﻿There was plenty of financial news in the first six months of 2015 such as the Greek debt crisis, Federal Reserve comments about interest rate hikes, and negative GDP growth in the first quarter. In the end the U.S. stock market basically went nowhere with the benchmark S&P 500 Index up 1.2% and the Dow Jones blue chip index exactly flat. Other sectors of the market performed better with the technology heavy NASDAQ and small cap stock indexes up in the 4%-5% range. 2015’s results follows six consecutive years of stock market gains and 44 months without a correction (defined as a 10% decline), but as we have noted in previous articles, markets are never “due” for a decline. In the 1980s the stock market had eight years of consecutive gains, and the 1990s saw a nine year run. Based on this precedent the market could easily continue its winning streak for several more years. In our view the market will generally respond to the economy; if a recession emerges then the market will likely come under strong pressure. The chart below summarizes results for the key stock market indexes for Q2 2015 and year-to-date. Note that as of July 16 the market has rallied 2% since quarter end attributed to Greece making a deal, and now the S&P 500 is up 3.2% so far in 2015.

The various bond markets were mixed so far in 2015 with U.S. Treasuries posting their first quarterly loss since 2013. Fears of a Fed rate increase led to an increase in the 10-year treasury rate from 1.93% at the end of Q1 to 2.34% at the end of Q2. This level is only slightly up from year end 2014 and still far below the 3.03% rate at the end of 2013. The Barclays U.S. Aggregate Bond Index, a benchmark index of the highest grade bonds (comprised of about 70% government bonds) declined by 1.68% in the quarter and is now flat for the year (see chart below). Note the 2.9% gain for high yield bonds in 2015, outpacing the S&P 500 and the Barclays U.S. Aggregate Bond Index; the higher yields provided by these bonds are less influenced by changes in market interest rates and continued to perform well.

DIA’s outlook for the rest of the year? Contrary to many investment firms we offer no opinion on future market movements since these types of predictions are meaningless. We have heard more comments recently from professional investors indicating that they are moving some money to cash due to concerns regarding stock market valuations – which is simply another way of saying that they are market timing, which many studies have shown does not work. To reduce risk simply allocate less to stocks for the long term. For DIA’s fixed income strategies we continue to avoid treasuries and high grade bonds as the yields are simply too low to commit long term capital; instead, we continue to find good values in high yield bonds that yield 5%-8% with four to eight year maturities. Next for this month’s article we recommend that readers take a look at a recent New York Times piece written by a Harvard economics professor titled “Why Investing is So Complicated, and How to Make it Simpler” (click here for link). A key point in the article is that investing is complex but the industry does not try to make it easier which causes many people to avoid dealing with their investments. The author implies that the industry deliberately confuses matters unlike, for example, the smartphone industry which competes to create the most elegant user interfaces. The article adds that if a fiduciary standard of care was required by all financial advisors consumers would get much better advice. Finally, a quick six month update for Downtown Investment Advisory. Eighteen months into the launch of the firm assets under management exceed $25 million with accounts ranging in size from $50,000 to over $3 million. We are currently working with over 20 clients as well as acting as financial advisor and fiduciary for a 401(k) plan. While our portfolio strategies are broad and include allocations to various combinations of stocks and fixed income, about two-thirds of assets are invested in managed fixed income accounts with clients seeking to earn steady annual income in the 4%-8% range. DIA's value proposition remains sophisticated, conflict-of-interest free investment management services tailored to each client, with an emphasis on intense personalized service and attention, at a highly competitive cost.

Note that this article was written to provide information and education, and is not intended to be considered investment advice, which can only be provided by DIA following a consultation and execution of an Investment Advisory Contract. Please scroll to the bottom of the webpage to access link to further important disclosure and terms of use information.

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